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Discretionary Accrual Models and the Accounting Process

Author

Listed:
  • Xavier Garza-Gomez

    (Nagoya City University)

  • Masashi Okumura

    (Nagoya City University)

  • Michiko Kunimura

    (Nagoya City University)

Abstract

This paper introduces a discretionary accrual model based on the accounting process developed by Dechow, Kothari and Watts (1998). Our model tries to prevent a big proportion of nondiscretionary accruals from being judged as discretionary. Using data from the Japanese stock market, we find that our model fits accruals much better than versions based on Jones (1991). Evidence in this paper shows that our model may modify the findings of previous research in two areas: 1) studies that use the versions of Jones model to detect earnings management and 2) studies that analyze the relation between discretionary accruals and future performance or the relation between discretionary accruals and stock returns.

Suggested Citation

  • Xavier Garza-Gomez & Masashi Okumura & Michiko Kunimura, 2001. "Discretionary Accrual Models and the Accounting Process," Kobe Economic & Business Review, Research Institute for Economics & Business Administration, Kobe University, vol. 45, pages 103-135, February.
    • Handle: RePEc:kob:review:feb2001::v:45:p:103-135
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    More about this item

    Keywords

    Cash flows; Accounting process; discretionary; Earnings management; Managerial discretion;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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